Wisconsin Mulls Banning Insurers from Using ZIP Codes

By Jeanny HopperPublished: Sunday, September 20th, 2009

A new proposal is being considered by Wisconsin’s State Senate, which would prohibit insurers from basing insurance rates on a car owner’s ZIP code. Wisconsin is one of several states that allow providers to use their policyholders’ ZIP codes to come up with insurance premiums. Insurers argue that ZIP codes are most often the best basis for rates since motorists living in urban areas are more prone to get involved in accidents than drivers who live in rural areas.

The proposal, Senate Bill 289, would disallow Wisconsin auto insurance companies from ever using ZIP codes to set rates for any motorist residing in Wisconsin. Analysts say that the said bill was initially introduced during the previous senate session by Tim Carpenter (D) of Milwaukee but failed to be elevated from the committee level. The said proposal was also included in the amended 2009 state budget bill, which now mandates all car owners in the state to have auto insurance.

Wisconsin is one of only two states in the U.S. that does not require motorists to have proof of insurance. By next year, however, law enforcement agencies will be checking for proof of car insurance whenever drivers are pulled over in routine traffic stops. Not having sufficient proof can mean a small fine for the first offense. The same budget bill also calls for minimum liability amounts to increase significantly to keep up with rising medical and damage repair expenses.

According to Sen. Carpenter, the need for a law prohibiting the use of ZIP codes by insurance providers came about because of repeated pleas from constituents all across the state. Carpenter added that in many town hall meetings he attended, car owners often complained of the practice and expressed dismay over having to move to other areas just to get cheaper insurance rates. Because insurers base premiums on the risks within a particular geographical area, and make use of ZIP codes to facilitate better processing, any motorists with the same ZIP code can expect higher rates.

The same bill would also call on providers to base rates on the driver’s safety record, driving experience, and the average number of miles driven each year. The state legislator adds that using these factors would be more beneficial and fairer for policyholders because they are all risk-based. Representatives from insurance companies operating in the state say that if the bill becomes a law, insurance rates in Wisconsin can go up by 10 to 12 percent.